The slight drop in new-home prices is due in part to a trend toward smaller lot sizes, smaller newly built homes and a move away from high-end finishes, all of which allow builders to offer homes for lower prices.
Sale prices for newly built homes fell 1 percent year over year to a median of $363,900 in the first quarter, the first such drop in seven years. Meanwhile, the median sale price for existing homes continued to grow, but at its slowest pace in seven years, up just 1.5 percent to $282,900 in the first quarter.
Sales of new homes were down 3.1 percent year over year in the first quarter, the third consecutive quarter of declines. Existing home sales, which were down 1.2 percent, have followed a similar trend of annual declines—which are now shrinking—since the second half of 2018.
While prices and sales were down, supply of new homes was up 4.2 percent in the first quarter, the fourth consecutive period of increases.
For existing homes, supply was up 4.8 percent. Inventory growth rates for new and existing homes have been trending toward convergence since the middle of 2018.
The small decline in new-home sale prices and sales and the rise in supply were expected. We first reported that demand for new homes was cooling in the second half of 2018 as builders started dropping prices and offering incentives to agents and buyers showing interest in new construction, such as free design upgrades.
Connie Durnal, a Redfin agent in Dallas, said builders are now using other methods to lower prices for new homes in her area, such as smaller lot sizes and including fewer upgrades in spec homes (those that are built without a buyer lined up). Lowering prices is part of an effort to sell some of the new-home inventory that’s been piling up in Dallas (supply of new homes in the Dallas metro was up 14.7% in the first quarter).
“The market for new homes is shifting. Builders are readjusting their pricing to be more competitive, both in low-end and high-end homes. Some of my clients have been able to buy new homes at prices we never could have negotiated a year ago,” Durnal said. “One reason builders are able to offer homes for lower prices is because in some cases, they’re building on smaller lots farther away from the city center, like in the northern suburbs. They’re also reducing monetary incentives such as design center credits and built-in blinds in favor of offering the home for sale at a lower price. That way, builders end up netting the same amount of money on a sale but homebuyers may feel that they’re getting a better price.”
“Builders are also reducing list prices by cutting down on upgrades inside new homes. They’re using smaller baseboards for the floor trim and fewer built-in recessed lights, for example, and fireplaces are often no longer standard features,” Durnal continued. “I recently helped a buyer close on a new home that had several features that weren’t ideal—vinyl flooring, no gutters and no sprinkler system—but it kept the price point low and she was able to afford the home. Those are all items that can be added later.”
Although the median sale price for new homes dropped on a national level during the first quarter, it didn’t drop in every metro area. Below is a look at the metro areas driving the declines, followed by the metros with the biggest increases in new home prices. The nationwide price change is calculated using a weighted average of each metro area Redfin tracks, with home sales as the weight. To be included in these tables, there must have been at least 50 new homes sold during the first quarter.
National new construction trends in the first quarter:
Metro-level highlights for new construction in the first quarter:
See below for a downloadable set of monthly data on new construction prices, sales, inventory and other new residential market statistics. The dataset goes back to 2012.
